Mr Yogesh Lohiya took over as Chairman at General Insurance Corporation (GIC) five years ago. The organisation was then going through a churn and still finding its feet as a fledgling re-insurer. This, after flying high in the many decades prior to 2000 as the holding company of all public sector general insurers. The role change itself — which involved unlearning and re-learning new skills — was unsettling for everyone. There was unrest among staff. Black-flag demonstrations, slogan shouting, go slow, work-to-rule and many other forms of industrial action was the order of the day.

Mr Lohiya says he tried to understand the grievances of his work force, created an atmosphere of trust and won their confidence. He says, “Whatever was right in their demands, I accepted without further discussion or delay.”

The second step was to remove any whimsicality in decision making. Everything was documented, and the incentives and benefits that everyone would get were communicated clearly. Promotion exercises which had been stopped for two years were revived. The unions were persuaded to agree to the exam system which they had earlier opposed. Mr Lohiya also took a couple of soft steps which made an impact – arranging for breakfast and lunch at the workplace for GIC staff who commuted a long way from home in Mumbai.

Further, he organised training programmes in reinsurance for his staff. He also sent them on trips abroad to improve their exposure and marketing skills. A number of small steps — providing laptops for senior officials, revamping the IT system, clear role definitions and providing facilities — has made a difference to the organisation and its morale. When he took over GIC was the 80th largest reinsurer in the world. Today it is the 14th largest reinsurer in the world. It also gets 42 per cent of its income from overseas operations.

In this interview, Mr Lohiya defends GIC's performance and contests the perception that obligatory cession of 10 per cent that it enjoys as a reinsurer contributes to its success. He also argues for regulations that will govern the global players' entry into the reinsurance market in India, pointing out that GIC is subject to the local laws in whichever country it sets up office.

Excerpts:

Since stock markets are down, is GIC buying in the market? How big is your portfolio?

As a reinsurer we are always in need of liquid money to pay claims. So we do not put so much money in markets. In fact, the amount that we can invest is prescribed by regulations. I agree that this may be a good time to buy for long-term players and we shouldn't close shop. Our portfolio is about Rs 10,000 crore.

Coming to your financials, the last fiscal saw a drop of nearly 58 per cent in your profits? Why did that happen?

We were doing well but you will appreciate that profits had come down because of events in Japan, Christchurch in New Zealand, and Australian floods. These three major events had taken place in March and our balance sheet date is March 31. So we have taken a hit of all these things in our balance sheet.

How much did you have to pay for these three catastrophes?

We are yet to pay. These are estimates coming. So we have a big hit. If you look at Japan, their estimates are coming. As of March 31 some figure was there, after two months the figures changed. So day-by-day we are refining the figures.

What is the estimate of how much you would have to pay?

We are definitely hit by more than Rs 1,200 crore because of these three incidents. And above all we have a hit on motor of about Rs 480 crore due to the mandatory 10 per cent cession. It is a three-year accumulation figure because ultimately we have to show it in our balance sheet. You will appreciate that in spite of all these things happening we have a profit of Rs 1,033 crore in 2010-11.

You are almost a monopoly player in India with obligatory reinsurance coming to you….

See, let us be very clear about something. We are not a monopoly. There are others who are in the business for the past 50-70 years. GIC became a reinsurance player only in 2001. There is no bar on any reinsurer writing business from India. There is no restriction at all. All regulations apply to GIC, but no regulation applies to them.

So why don't we see more players being allowed to set up shop?

There is no bar. If I go abroad I am subject to a lot of restrictions. When we have a branch in London or Kuala Lumpur, we are subject to local regulations. When they come here, they should be subject to some control. It should not be a free-for-all. Today, if I want to write some business in the US, where I don't have a branch, I have to provide a letter of credit. In some other countries such as Singapore or Thailand, we have to keep 5 per cent of our earnings there. We can't repatriate that amount. We are perhaps too generous here. All we want is there must be a law and they should be answerable to somebody.

Still, don't you get a 10 per cent share that comes on a platter and gives you an advantage?

That's loss making. See I have no choice. 55 per cent of our business comes from motor and health, and you know the result of these two. They have more than 138 per cent claim experience, whereas third party liability gives more than 180 to 200 per cent claim experience. So you can see that 65 per cent of the business is purely a well defined loss, where I would take 10 per cent share.

As for the balance, fire segment used to be a profitable segment in the past, with 40 per cent claim experience. Now claim ratio has gone as high as 85 to 86 per cent.

If you look at the domestic market, we are not comfortable. That is why we have decided to move out, because these are the areas which are giving a loss to us. That is why we put a lot of conditions in our reinsurance programme while providing support to our domestic market. That is the reason we are relying more on international business.

How big is your international business?

It is nearly 42 per cent. It's a big number. You tell me how many reinsurance companies have this much portfolio. It is not a question of monopoly organisation. We are not relying on the domestic business at all. If you leave it to me, I am just providing support, which I am required to provide by law. Otherwise I am not at all interested. We are here to earn money like any commercial organisation.

Where does your international business come from?

Today, roughly 25 per cent comes from Dubai and West Asia. About 7 per cent comes from London and Europe. We write about 65 per cent of our international business in Mumbai. And about 3 per cent comes from Kuala Lumpur.

What's the biggest worry for you now?

We have developed well. But my worry is about risk-based pricing. We have kept our technical expertise on one side. Price has become the only parameter to judge risk. GIC had to wind up the Loss Prevention Association (that used to provide data on loss prevention and loss minimisation).

This concept is there everywhere. Are we waiting for a disaster to happen? We have customers of some insurance companies coming to us and asking if the insurers would be able to pay their claim if they collect such low premiums. There is need for greater discipline – and the regulator can do only so much with its carrot and stick.

Perhaps companies will become more responsible if they list themselves on a stock exchange.

Will that bring in more discipline?

Definitely. People become more accountable. And that further improves efficiency. I have seen this happen in GIC Housing which is a listed subsidiary.

Will general insurance companies look at listing now?

Until now, no one has shown any willingness. But if you ask me, I am interested. There is good value. Any organisation having so much financial strength, with a lean structure, systems-oriented should certainly get a good valuation. We are a 100 per cent Government-owned organisation. It is for the Government to take a call

Will the Government benefit?

Yes. If they sell even a small stake, they will get some money. They have invested only Rs 5 crore in our capital. We have given back over Rs 2,000 crore in dividend. You can imagine the valuation that we'll get.

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